Mr Prime Minister, Patron of the Pakistan Society of Development
Economists and Chancellor PIDE, Minister for Planning and Development,
Ministers, Past Presidents and Distinguished Members of the Society,
Excellencies, Ladies and Gentlemen:

It is my pleasure to welcome you all to the 24th Annual General
Meeting and Conference of the Pakistan Society of Development
Economists.

We are extremely grateful and honoured by the presence of the Prime
Minister. On behalf of the members of the Pakistan Society of
Development Economists (PSDE), I would like to thank you, Sir, for
having spared your precious time to grace this occasion. I would like
also to especially thank our guests who have come from different parts
of the country and from abroad to participate in the Conference. We are
heartily pleased to see here today many students of Economics and other
social sciences from different colleges and universities of Pakistan who
are just as eager as regular members to understand our subject better.

At the outset, on behalf of all members of the PSDE, I would like
to recognise the support and encouragement of the Prime Minister as
Chairman of the Planning Commission to the initiative taken by the
Deputy Chairman and his predecessor Mr Salman Faruqui to actively
involve professional economists in Pakistan in the process of economic
policy-making. The new Task Forces on critical economic concerns and the
Advisory Panel of Economists to frame the short-run and medium-term
policies by the Planning Commission are democracy's gifts to the
economists of Pakistan. Democracy encourages independent thinking,
accommodates diverse viewpoints, and thus makes it possible to evolve a
comprehensive policy for all.

The Interim Report of the Panel of Economists on "Economic
Stabilisation with a Human Face" was presented to both the Prime
Minister and the President of Pakistan. Most importantly, the Prime
Minister invited the Chair and Convener of the Panel to a Special
Meeting of the Cabinet to present the Interim Report at the same time as
the proposed agreement with the IMF was discussed. This gave the Cabinet
an opportunity to weigh both the home-grown stabilisation package
together with the proposed IMF agreement before finalising the matters.
The process underscores the seriousness and importance the Prime
Minister has attached to the work of the Advisory Panel of Economists
and, I may add, to the Task Forces set up.

Let me assure you, Prime Minister, that the economists of Pakistan
will rise to the trust you have reposed in us to meet the economic
challenges that face Pakistan today.

And these are challenging times indeed. The current financial
crisis has exposed a dark and unacceptable face of globalisation. The
global economy faces its worst crisis and the largest contraction in 80
years since the Great Depression of the 1930s. The crisis has moved from
Wall Street to Main Street and now encompasses All Streets as falling
output, shrinking world trade and job losses hit countries--both
developing and developed--all over the world. It is estimated by
international agencies that world assets have dropped, in the current
crisis, by almost one-third, or $60 trillion in value; $33 trillion have
been lost on global stock markets alone; and property prices lost 40
percent last year. The ILO estimates that up to 50 million jobs may be
lost before long.

The global economic crisis came in the wake of an unprecedented
hike in world oil and commodity prices that spurred high inflation and
created food shortages. In turn, poverty and malnutrition increased and
drove food security issues to the forefront of the global debate.

But this is not just a global financial crisis that is now spilling
over to the real economy, further reducing output and employment. It is
also a crisis of confidence in the way markets in the recent past have
been allowed to function, largely unfettered and unregulated, based on
the mistaken assumption that markets are always self-correcting. The
point is not that we return to planned economies. The primacy of the
market in best allocating resources is well-acknowledged. What we need
to put in place are good and better--functioning regulatory mechanisms
that will help us avoid the pitfalls that we are now facing.
Unfortunately, efforts in this direction are still in their infancy.
They need to be more seriously pursued.

The global financial architecture has proved to be woefully
inadequate, and needs reform. The IMF and the World Bank are
increasingly viewed, especially in the industrialised countries, as
outdated institutions. The former is seen to be powerless, the latter
faces severe financial crunch, and its effectiveness is increasingly
questioned. Both these institutions--and here I should include the
Regional Banks as well--recognise the need for reform. Based on
Pakistan's experience, we should contribute to this reform process
as we remain heavily dependent on these multilateral agencies for
funding.

In these challenging times the Conference addresses the crisis the
global economy faces and what it means for Pakistan. The 3Fs crisis as
it is now termed--the Food, Fuel, and Financial Crisis--will be examined
during the Conference in the overall context or promoting inclusive
growth as Pakistan faces serious internal and external threats. Let me
briefly touch on these.

The first challenge pertains to ensuring food security for our
people at a time when, despite the recent fall, global food prices are
still higher in 2009 by 71 percent as compared to 2005. This secular
reversal in the global terms of trade in favour of agriculture provides
us with both an opportunity and a challenge. The challenge is to ensure
that domestic supply outstrips demand through increasing profitability,
productivity, and efficiency gains. The opportunity is to transform the
world's largest canal-based irrigation system into a leading
producer and exporter of raw materials, food grains, livestock, and
livestock products. A key issue is the role the government should play
in influencing agricultural prices in the face of extreme volatility in
global markets. The other is providing food security, including direct
income support for the poor and vulnerable groups, in the face of rising
foodgrain prices that the move towards world prices will entail. There
is a need also to examine the efficacy of the measures taken for free
movement of foodgrains within the country. Finally, given global
volatility in prices and supply, we need to build sufficient reserves to
instill confidence in the market.

Our current energy crisis is a classical breakdown or disconnect
between out development planners and our financial planners. The latter
jump-started the economy post-2002 through a cheap or loose money policy
that opened the floodgates of imports of automobiles and consumer
durables, which sharply increased the demand for oil and power. Our
development planners continued to project demand for energy, based on
historical growth trends and consumption patterns. The result is
electricity loadshedding that can extend up to 12 hours a day, crippling
industry and services, agriculture based on tubewells, and untold misery
to consumers.

The hike in oil prices and the failure of the last government to
adjust fuel prices prudently created an unprecedented "circular
debt" crisis, which we are trying to get rid off even today. This
"circular debt" worsened the energy crisis as it meant
generating energy below our available supply capacity. I believe that we
should have given this problem (estimated at Rs 650 billion earlier this
year, but now estimated at around US$250 billion) the highest priority
and, with multinational and donor support, tried to overcome it head-on.

The energy crisis has brought out some fundamental problems and
issues that we need to address. The first of these is not just the
coordination between our financial and development planners, but the
need to demarcate clearly the roles and responsibilities of the key
players in economic decision-making, namely, the Finance Ministry, the
State Bank, the Planning Commission, and the line Ministries.
Concentration of economic power in just one arm of the government has
created serious problems.

Secondly, we need to be very realistic in our expectations of
resources that will be forthcoming, especially through private-public
partnership and direct foreign investment in the energy sector; and this
holds true for infrastructure development in general. Returns in this
sector, especially, energy, are high, which should attract direct
foreign investment. But we need to take a holistic view of the overall
situation. Part of our current crisis stems from the fact that expected
private foreign investment in the energy sector was not forthcoming.
Government plans in this area should be subject to close scrutiny and
discussion. This is the best check on how realistic they are and how
well they may deliver.

It is still early to gauge the full impact that the global
financial crisis will have on Pakistan's economy. So far, it has
proved to be a mixed blessing. The decline in oil prices that it
triggered provided much-needed relief to our balance-of-payments
situation. Falling global demand, on the other hand, is adversely
affecting our traditional exports, namely, textiles. Remittances have
continued their post 9/11 upward trend and are expected to reach $7.5
billion this year. Global projections suggest that remittances will
decline between 1 to 6 percent this year, with an adverse impact on
domestic growth and poverty. If our remittances continue to be buoyant
in the current downturn, it may suggest that it contains other flows
than just traditional remittances.

In the context of the global financial crisis and how countries are
trying to revive their economies, a key concern expressed is: Why is
Pakistan trying to deflate its economy at a time when all others are
providing a fiscal stimulus to reflate them?

The dominant, or at least the prevailing view of policy-makers at
the end of last year, including that of the Panel of Economists, was
that given our fiscal and trade deficit and extremely high inflation, we
had to stabilise the economy through appropriate fiscal and monetary
measures to compress aggregate demand or face default.

My own view is that we now need to re-examine this stance seriously
in light of recent developments both globally and domestically. I
believe that corrections can be made without jeopardising our
international commitments. First, the money markets have sufficiently
eased now to bring down the rate of interest, sooner rather than later,
to rekindle economic activity. Secondly, we must frontload our
development expenditures to inject demand into the economy so as to spur
output growth and create job opportunities. My concern is that while
other countries, through a fiscal stimulus, are rebuilding their vital
infrastructure to emerge more competitive when the global economy picks
up, we might end up with a depleted infrastructure further run down.

A silver lining in this difficult situation is the increase in
support prices announced by the government, earlier for rice and now for
wheat. These steps should act as a demand stimulus for the economy. For
wheat alone, the support price increase should inject around Rs 60
billion in terms of the marketable surplus, with an estimated wheat crop
of 24 million tons.

Also, inflation remains a serious concern. It should have shown a
larger decline than what we are witnessing, given the sharp fall in
global oil and food prices, which had spurred inflation earlier. While
conceding that monetary and fiscal measures clearly impact on inflation,
it would appear that in our case market rigidities and inflationary
expectations are dampening this expected impact. Inflation appears to be
more structural than just a monetary phenomenon, and the measures to
reduce it need to be examined in this context.

Last, and perhaps most important of all, I turn to the issue of
ensuring inclusive growth in our development process. There is now a
large body of literature, including that on Pakistan, that argues
convincingly in favour of strengthening the mechanisms and building
transparent and well-functioning state institutions as the pre-requisite
for achieving inclusive growth. It also shows, with strong empirical
evidence, that growth that generates remunerative and productive
employment is the most effective means of ensuring inclusive growth. In
this context, the issue of increasing labour mobility, especially
vertical or upward mobility, deserves more serious attention. Earlier
on, state or government employment served as a means for upward
mobility, especially for those from poorer households and more backward
regions in the country. With primarily private sector-led growth and
diminishing public sector employment opportunities, people from such
backgrounds find themselves at a disadvantage; for now, even if they
possess the educational skills they may not have the social skills, to
find gainful employment that will meet their expectations. This is an
issue which, to my mind, may lie at the heart of the problem that is
driving young people towards extremism and violence. We need to examine
carefully the ways and means of ensuring upward labour mobility,
including the public sector channels, through internship programmes and,
more well-functioning and efficient labour market.

It is a long and challenging menu that I have put forward. We look
to this Conference for ideas and recommendations, in selected areas,
that policy-makers can work with and researchers and analysts can
further explore. This is not a time for timidity. Let us be bold in our
thinking.

Let me in the end thank the Higher Education Commission, Department
for International Development (DFID) and the Friedrich Ebert Stiftung
(FES) for their support in organising this Conference.

I thank you all for your patient hearing.

Rashid Amjad is President of the
Pakistan Society of Development Economists, and Vice-Chancellor,
Pakistan Institute of Development Economics, Islamabad.